A bank enters a reverse repurchase agreement in which it agrees to buy treasury security from one of its correspondent bank at a price of 10 million with the promise to sell the securities back at a price of kshs. 10,008,548 after 5 days. Calculate bond the discount yield for the investing banks.
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c. A bank enters a reverse repurchase agreement in which it agrees to buy treasury security from one of its correspondent bank at a price of 10 million with the promise to sell the securities back at a price of kshs. 10,008,548 after 5 days. Calculate bond the discount yield for the investing banks.
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- Question A, B and C is required. Question 3. Bond Consider a bank with the following balance sheet (M means million):AssetsValueDuration of the AssetConvexity of the Asset5yr bond bought at a yield of 3.4% (lending money)$550M4.562 12.026 12yr bond bought at a yield of 4% (lending money)$800M9.453 53.565 LiabilitiesValueDuration of the LiabilityConvexity of the Liability2yr bond sold at a yield of 2.4% (borrowing money)$300M1.9412.3844yr bond sold at a yield of 2.8% (borrowing money)$500M3.7598.206a) Calculate the equity (total asset – total liability) to asset ratio of the bank(Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides; c) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio;please question D and E is required. Bond Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 a) Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides; c) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio; d) In c)’s…Can you pleas provide clear answers for B, convexity and duration.Thank you for your time. Question 3. Bond Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset5yr bond bought at a yield of 3.4% (lending money) $550M 4.56212.02612yr bond bought at a yield of 4% (lending money) $800M 9.45353.565 Liabilities Value Duration of the Liability Convexity of the Liability2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.3844yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 a) Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides;
- Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset5yr bond bought at a yield of 3.4% (lending money) $550M 4.56212.02612yr bond bought at a yield of 4% (lending money) $800M 9.45353.565 Liabilities Value Duration of the Liability Convexity of the Liability2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.3844yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio In c)’s scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero convexity) from the equity holders. How much cash does the bank need to raise?Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset Syr bond bought at a yield of 3.4% $55OM (lending money) 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $80OM 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability Zyr bond sold at a yield of 2.4% (borrowing money) 4yr bond sold at a yield of 2.8% (borrowing money) $300M 1.941 2.384 $500M 3.759 8.206 a) Calculate the equity (total asset- total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides; ( c) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratic d) Incys scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero…Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset $550M 12.026 Syr bond bought at a yield of 3.4% (lending money) 4.562 12yr bond bought at a yield of 4% $800M 9.453 53.565 (lending money) Value Duration of the Liability Convexity of the Liability Liabilities Zyr bond sold at a yield of 2.4% $300M 1.941 2.384 (borrowing money) 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 a) Calculate the equity (total asset - total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) ( b) Calculate the duration and convexity of the both asset and liability sides; c) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio; d) Inc's scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero…
- A bank has issued a six-month, $1.0 million negotiable CD with a 0.53 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately after the CD is issued, the secondary market price on the $1 million CD falls to $998,900. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $1.0 million face value CD. Required A: Bond Equivalent Yield ___ EAR____ (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 3 decimal places.) Required B: CD Holder will receive at maturity_____(Do not round intermediate calculations. Round your answer to nearest whole number.) Required C: Bond Equivalent Yield____ Secondary Market Quoted Yield______ EAR_____ (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 4 decimal places.Compare the required credit risk capital under Basel I and Basel Il for the following set of arrangements. (a) A 2 year interest rate swap with a principal of $100 million traded with an AA rated company, currently worth 2.5 million (b) $30 million 3 year Treasury bond with a BBB rated OECD sovereign (c) $20 million claims secured by residential mortgages (d) A six month corporate loan of $ 25million to an A+ rated companyQuestion In each of the following cases indicate whether it would be appropriate for an FI to buy or sell a forward contract to hedge the appropriate risk.a) A commercial bank plans to issue bonds in three months. b) An insurance company plans to sell bonds in two months. c) A thrift is going to purchase Treasury securities next month. d) A U.S. bank lends to a French company; the loan is payable in euros. e) A mutual fund plans to sell its holding of stock in a German company.
- As you confirmed there are errors in the solutions.Can you please provide clear answers for B,C,D. Question 3. Bond Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset5yr bond bought at a yield of 3.4% (lending money) $550M 4.56212.02612yr bond bought at a yield of 4% (lending money) $800M 9.45353.565 Liabilities Value Duration of the Liability Convexity of the Liability2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.3844yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 a) Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides; c) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio; d) In c)’s scenario, to maintain the equity to…The time from acceptance to maturity on a $1,000,000 banker's acceptance is 135 days. The importer's bank's acceptance commission is 1.75 percent and the market rate for 135-day B/As is 5.75 percent. What amount will the exporter receive if he holds the B/A until maturity? If he discounts the B/A with the importer's bank? Also determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter. If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity? (Do not round intermediate calculations. Round "Maturity value" to 2 decimal places. Round "Bond equivalent yield" as a percent rounded to 2 decimal places.) Amount the exporter will receive at maturity Amount the exporter will receive if discounted Bond equivalent yield Should he discount the B/A or hold it to maturity? %The time from acceptance to maturity on a $1,000,000 banker's acceptance is 120 days. The importer's bank's acceptance commission is 1.75 percent and the market rate for 120-day B/As is 5.75 percent. What amount will the exporter receive if he holds the B/A until maturity? If he discounts the B/A with the importer's bank? Also determine the bond equivalent yield the importer's bank will earn from discounting the B/A with the exporter. If the exporter's opportunity cost of capital is 11 percent, should he discount the B/A or hold it to maturity? (Do not round intermediate calculations. Round "Maturity value" to 2 decimal places. Round "Bond equivalent yield" as a percent rounded to 2 decimal places.) Amount the exporter will receive at maturity Amount the exporter will receive if discounted Bond equivalent yield Should he discount the B/A or hold it to maturity? Discount the B/A %